Wednesday, February 24, 2010
Ninth Circuit Rejects Federal Challenge to Tip-Pooling Arrangements
By STEVEN M. ELLIS, Staff Writer
Restaurant wait staff that make more than the minimum wage can be required to share their tips with other restaurant employees, the Ninth U.S. Circuit Court of Appeals ruled yesterday.
A three-judge panel held that federal law only prohibits redistributing pooled tips to employees not “customarily and regularly tipped” when an employer relies on servers’ tips to bring their total wages up to the federal level.
Misty Cumbie, a waitress at the Vita Café in Portland, Ore., filed a class action under the Fair Labor Standards Act contending that her employer’s practice of using 55-70 percent of pooled tips to pay dishwashers and cooks violated the FLSA’s minimum-wage provisions and amounted to an indirect kickback to kitchen staff for the owner’s benefit.
Servers at the restaurant received a cash wage at or exceeding Oregon’s minimum wage, which at the time was $2.10 more than the federal minimum wage, as well as a share of the remaining tips in proportion to hours worked.
Cumbie argued that because the tip pool included employees who are not “customarily and regularly tipped employees,” it was invalid under 29 U.S.C. § 203(m) and the restaurant was required to pay her the minimum wage plus all of her tips.
U.S. Magistrate Judge Paul J. Papak of the District of Oregon, however, dismissed in 2008 for failure to state a claim, and the Ninth Circuit affirmed in an opinion by Judge Diarmuid F. O’Scannlain.
Writing that arrangements to turn over or redistribute tips are presumptively valid, he agreed with the restaurant that Cumbie’s reading of the FLSA was correct only as to employers who take a “tip credit,” or rely on part of an employee’s tips to meet minimum-wage obligations, which the restaurant did not do.
The judge pointed to the statute’s third sentence, which he said provides that an employer who pays less than the minimum wage may not take a tip credit unless it informs the employee of the arrangement and limits the pool to other customarily-tipped employees.
“[W]e cannot reconcile [Cumbie’s] interpretation with the plain text…which imposes conditions on taking a tip credit and does not state freestanding requirements pertaining to all tipped employees. A statute that provides that a person must do X in order to achieve Y does not mandate that a person must do X, period.”
O’Scannlain also rejected Cumbie’s claim that a Department of Labor regulation defining “pay” in terms of an employer’s duty under Sec. 206 to pay each employee wages at the prescribed minimum hourly rate militated against forced transfer of tips.
The regulation, 29 C.F.R. § 531.35, requires that the minimum wage be “paid finally and unconditionally or ‘free and clear,’” and forbids any “‘kick[ ]-back’…to the employer or to another person for the employer’s benefit the whole or part of the wage delivered to the employee.”
The Department of Labor backed Cumbie’s interpretation in an amicus brief, but O’Scannlain noted that Cumbie acknowledged the applicability of the regulation hinged on whether the tips belonged to the servers to whom they were given. He said that brought the question back to Sec. 203(m) and whether an agreement to redistribute tips that was not barred by the FLSA existed.
“Here, such an agreement existed by virtue of the tip-pooling arrangement,” he wrote. “The FLSA does not restrict tip pooling when no tip credit is taken. Therefore, only the tips redistributed to Cumbie from the pool ever belonged to her, and her contributions to the pool did not, and could not, reduce her wages below the statutory minimum.”
Judge N. Randy Smith and Senior U.S. District Judge Charles R. Wolle of the Southern District of Iowa, sitting by designation, joined O’Scannlain in his opinion.
The case is Cumbie v. Woody Woo, Inc., No. 08-35718.
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